Verizon Aims to Horse-Trade With FCC in Spectrum Sell-Off

By Rachelle Dragani
Apr 19, 2012 10:27 AM PT

Verizon reported a strong first quarter of 2012, it revealed Thursday, thanks in part to new FiOS and wireless subscribers.

Verizon took in US$1.69 billion in profit, or 59 cents per share, an increase from the 51 cents per share it reported from the same time last year. The company's operating revenues were $28.2 billion, up 4.6 percent. The wireless provider is now up to 93 million subscribers, and nearly 47 percent of those are smartphone users.

Verizon's earnings came out ahead of Wall Street expectations.

The earnings report comes one day after Verizon Wireless announced it is willing to auction off large chunks of its 700MHz spectrum in order to help Verizon win approval for its pending wireless spectrum purchase.

However, the sale won't happen if Verizon's pending spectrum purchases don't meet approval. In December, the company announced its intention to buy large chunks of airwaves, mainly from cable companies.

The wireless provider is waiting on FCC approval for a $3.6 billion purchase of AWS licenses from SpectrumCo, a consortium of Comcast, Time Warner Cable and Bright House Networks. Verizon is also pursuing a $315 million deal with Cox and a spectrum swap with Leap Wireless, both of which also need FCC approval.

Selling Some to Get Some

The FCC decision should be finalized by mid-summer, Verizon said. The company has argued that the sales are in the best interest of customers, but some competitors and public interest groups disagree.

After Verizon announced the SpectrumCo, Cox and Leap deals, 18 media watchdog organizations, including the Media Access Project and Demand Progress, signed a letter to Congress highlighting the potential downsides to a deal. They claimed the purchase would lead to higher prices, reduce openness and stifle the creation of "super-WiFi," an advanced wireless technology.

Verizon has acknowledged it's aware of the criticism. The company claims it's "rationalizing" its holdings and that the sale will benefit other carriers and customers.

"Verizon is trying to grease the path to help this deal with the cable television companies get done," Jeff Kagan, tech analyst and consultant told the E-Commerce Times.

Who's Buying?

Verizon declined to specify which parties will likely bid on the spectrum it intends to sell.

"Verizon has instructed Stephens Inc. to ensure broad outreach to a diverse group of potential buyers," Robin Nicol, communications for Verizon Wireless told the E-Commerce Times.

Given the current spectrum crunch, that could mean a great number of potential bidders, said Kagan.

"Spectrum is like gold," he said. "It's very valuable, and there's not enough of it."

The rapid rise of smartphone and data usage is a large reason spectrum is so in demand. Some companies are turning to -- or at least attempting to turn to -- consolidation in order to increase spectrum holdings, as was the case with AT&T and T-Mobile. After much debate and competitor protest, AT&T was denied in its attempt to purchase the smaller carrier.

It's possible that Verizon's attempt to purchase airwaves from SpectrumCo will also be denied, or at least thoroughly scrutinized. Verizon's efforts to have a working business relationship with Comcast may have a negative impact on competition in the wireless industry, he said.

"As this wireless industry continues to mature and the number of competitors continues to shrink through mergers, we have to be careful before we hurt the marketplace," said Kagan.

While customers might have to get used to paying more for their smartphone data plans in the future, providers also must start working together to make sure the marketplace is still open to innovation, said Kagan.

"The competitors should pull the camera back," said Kagan. "Instead of looking at deals that only benefit them, they should look at deals that would benefit the entire industry, all the competitors and all the customers. If not, in a few short years, as wireless data usage continues to skyrocket, we may see our choices of competitors drop."